NY Dept Financial Services: Online Lenders Need Oversight

New York’s Department of Financial Services is recommending that online lenders are subjected to the same scrutiny and regulations that traditional banks face.

A bill signed by Governor Andrew M. Cuomo on June 1, 2017, required DFS to study online lending in New York State and submit a report of its findings. Superintendent Maria T. Vullo announced the release of that report on Wednesday (July 11).

Among its findings is that the majority of New Yorkers using online banking are individuals as opposed to businesses. The 35 companies that provided information in response to the Department’s Survey reported that in 2017, the total number of New York customers, both individuals and businesses, was 235,320 — an increase of approximately 79 percent from their 2015 level. Of that total, 8,664 were New York business customers, and 226,656 were New York individual customers.

“Access to credit is essential to the well-being of consumers, the lifeblood of small businesses and a driver of economic growth, job creation and prosperity of our communities in New York,” said Superintendent Vullo. “Our review shows that while online lending has grown in recent years, our banking industry still supports the overwhelming majority of lending in New York while being subject to strong safeguards and oversight. DFS supports the promise that new technologies are able to reach more consumers, but innovation must also be responsible, and all associated risks must be appropriately managed, including by strong underwriting standards, compliance with usury laws, and capital requirements. All lenders must operate on a level playing field and address market risk. As the regulator of the financial services industry in New York, DFS has and will continue to be a leader in enforcing robust market safeguards and consumer protections through strong state regulation, licensing and supervision.”

In the report, DFS makes the recommendation that online lenders face the same regulations as traditional financial institutions.

“All New York lenders should operate under the same set of rules and be subject to consistent enforcement of those rules to achieve a level playing field for all market participants, which is the underlying principle of free markets and competition,” the department wrote in a release.

In addition to requesting that online lenders be subjected to the same usury limits as banks, DFS also points out that many online lenders remain unlicensed in New York with no direct supervisory oversight, which is needed in order to protect the state’s consumers and business owners.